Global Effort To Tax Multinational Businesses In Works

A global economic body has proposed a plan to prevent large multinational companies like Apple, Facebook, and Amazon from avoiding taxes in countries where they do significant business by shifting profits between countries. The Paris-based Organization for Economic Cooperation and Development (OECD), which advises 134 countries on international tax standards, published an 18-page framework plan that would tax multinationals on their revenue, not just their profits. The OECD’s proposal will be presented to finance ministers at the G-20 summit in Washington next week.

The OECD says the proposals could form the basis of an international agreement on digital taxation as early as next year. How and where companies that operated across national borders were taxed would be changed, but the details of those tax rates would be left up to future negotiators. The framework applies only to multinationals with annual revenues of about $825 million or higher and excludes manufacturing suppliers and resource extraction companies.

Currently, multinationals tend to pay most of their tax in the country where they are based. In the European Union, multinationals with business across the continent pay taxes almost exclusively in low-tax havens like Ireland, Luxembourg or the Netherlands. That allows them to pay lower rates than companies that operate only in a single country like the United States. The small countries have been accused of offering advantageous tax terms to multinationals who agree to establish headquarters there.

The issue became particularly pronounced after France put a tax on the digital operations of large tech companies over the summer. France levies a 3 percent tax on French sales for a select group of 30 companies including Facebook, Google, and Amazon. The Trump administration responded by ordering an investigation into whether the tax unfairly targeted U.S. companies and threatening tariffs on imported French goods, like wine. The two sides agreed in August to try to reach a global deal to better tax digital businesses by mid-2020.